Trade is Central to LDC Growth?

It is not surprising that trade policy -- as it relates to economic growth – has not figured prominently in the development agendas of least developed countries (LDCs). This is mostly due to the fact that key issues, such as health, clean water, conflict and war have dominated attention and driven debate and discussion– and rightly so. But what about trade as an engine of growth to help drive down poverty – to help address broader development goals?

The good news story on trade and the LDCs is often ignored. Bad news stories and editorials (along with blog posts in on-line media) sell newspapers and make for splashy television and video clips on YouTube. This is what dominates the stories and headlines.

There are serious challenges in poverty for the poorest living in LDCs, most certainly. But real progress on trade has been made and should be championed and applauded, and built upon over the next decade.

Export growth in LDCs has turned from negative on average over the 1980s (-3.4%) to a spectacular rate of 18.5% in the 2000s. Between 2000 and 2010, the trillion dollar sub-Saharan African economy grew faster than Brazil and India. There are countless data points that show the real progress in LDCs over the past decade. Individual country performance does vary, however, so one must be cautious about the data. Nonetheless, the good news on trade and growth can not be ignored.

The United Nations recently hosted a once-in-a-decade conference in Istanbul that concluded on May 13th. The World Bank participated in the discussions and debate in Istanbul, led by our Managing Director, Ngozi Okonjo-Iweala. There were a number of specific areas of focus, the significant success of IDA in helping to address poverty reduction over the past decades, the importance of inclusive finance to growth, new strategies to assist the poor in Africa – and the importance of aid for trade and trade reform in the LDCs.

At the conclusion of the Conference, trade was, of course, included in the official UN LDC Programme of Action, endorsed in Istanbul – and with good reason. It is important to growth in the LDCs, and removing barriers to trade must be part of the post-crisis road ahead.

Research at the Bank demonstrates that reform in trade facilitation matters a great deal to the least developed countries; it documents that reform to lower trade costs – and increase transparency in the trading system promises a high payback and rate of return on our efforts. This is especially true for highly targeted aid for trade assistance.

For example, the Bank estimates that if trade facilitation investment were focused to improve the infrastructure quality of Chad halfway to the level of South Africa, trade levels of the former would increase by 79.3 percent. A comparable increase in exports would also be feasible with a reduction of 57.7 percent in import tariffs.

On Monday, May 9th – opening day of the UN LDC-IV Conference – the World Bank, through the Development Research Group’s Trade and International Integration team, hosted a Special Event on “Aid for Trade for the LDCs: Policy Reform, Effectiveness, and the Private Sector.” The event, chaired by PREM Vice President, Otaviano Canuto, and included the participation of Ms. Bethlehem Alemu, Founder and Managing Director of soleRebels, a start-up shoe company in Ethiopia, Mr. Hans-Jurgen Beerfeltz, Germany’s Secretary of State for Economic Cooperation and Development, and us.

Together, this panel was able to provide insight into a forward-looking trade agenda for the LDCs. From the private sector perspective, Ms. Alemu emphasized the need for more favorable government policies to strategically bolster export volumes and export market diversification. From the donor perspective, Secretary Beerfeltz advocated for moving the aid for trade agenda from one of “resource mobilization” to one of strict results-based monitoring and evaluation. He also raised the issue of results-based monitoring and evaluation of aid for trade projects. These two views were complemented by economic and policy analysis from John Wilson, on behalf of the World Bank.

As part of our work in preparation for the UN LDC-IV Conference, we have been working with the United Nations to develop the outlines for a new trade research partnership to support data, research, and dissemination of information on trade support measures to assist LDCs to help better support trade and integration of the poor into the global economy. New partnerships between the Bank, the United Nations, and the least developed countries would complement and support work in the new G20 Working Group on Development – specifically on trade and development, which emphasizes the importance of duty free, quota free (DFQF) market access for the least-developed countries and increased cooperation between emerging economies and low income countries in capacity building.

For more information on the Bank's Trade team's LDC-IV special event, please visit our webpage, which includes links to full remarks and a summary of proceedings.